Is JCPenney dying?

Brian Sozzi

The buzzards are circling the wounded carcass of JCPenney.

Shares of the struggling department store plunged below $1.00 for the first time ever on Wednesday. The breaking the buck moment is alarming for several reasons.

For one, retail stocks such as Macy’s, Amazon, Nordstrom and Kohl’s sprung back to life the day after Christmas on fresh signs that consumers spent aggressively this past holiday season. Mr. Market pretty much said in the session that JCPenney was one of the odd ducks out in what is tantamount to a good old-fashioned holiday spending boom.

No bueno.

Secondarily, the slide adds to the some 40%-plus decline in JCPenney’s stock (JCP) since CEO Jill Soltau took over in early October. Considering Soltau is a highly accomplished retail executive and well-regarded on Wall Street, investors may simply be losing confidence in her abilIty to turn the company around after years of operational missteps by various execs.

A JCPenney spokesman didn’t immediately return an email request for comment on the stock price.

What’s happening: The bear raid is in full effect at JCPenney for valid reasons. Same-store sales, a key retail metric that measures sales from stores open longer than a year, plunged 5.4% in the third quarter. The company has reported net losses in four of the past five years, per its most recent annual report. Total cash has slid consistently since hitting an annual peak of $1.5 billion for the fiscal year ended Feb. 1, 2014.

Meanwhile, the Plano, Texas-based company had a mere $168 million in cash exiting the third quarter. When you are looking at a burdensome $4.2 billion in long-term debt on the balance sheet, as JCPenney is, that cash position is far from a positive. About $160 million of that debt will come due in 2019 and 2020, according to the company. But two large tranches — $437 million in 2022 and $1.6 billion in 2023 — are coming down the pike for repayment.

Soltau has to find a way to cut that debt to ease the concerns of investors. Debt reduction will have to be balanced with getting enough cash on the balance sheet to keep operations going seamlessly. It doesn’t help that JCPenney has a junk credit rating amid a period of rising interest rates.

What’s next: JCPenney is likely on the cusp of revealing another major store closing plan in a bid to shore up its finances. “We’re in the process of reviewing the store fleet as we do on an ongoing basis, but specifically at the end of the year each year right now, so that’s an ongoing process for us, and look forward to obviously updating you at the end of this year on our thoughts surrounding that,” JCPenney Investor Relations Chief Trent Kruse said to analysts on a third quarter conference call.

The reality is that given its poor sales trends in recent years, high debt levels and intense competitive environment, JCPenney still has too many stores in operation (860). The company only closed 140 lagging stores in 2017 under then CEO Marvin Ellison. By comparison, rival Macy’s (which is nicely profitable) has 690 stores.

The bottom line: Impending cash crunch? Suppliers getting a little fearful dealing with the company (see the Sears situation)? Too many things for Soltau to fix and too little time? Whatever the root cause for JCPenney’s stock falling through a trap-door since the fall, the market is voicing its concern. And it’s likely several of those concerns will appear one way or another in the company’s fourth quarter earnings release sometime in March.

By then, JCPenney may be trading at $0.50.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter

@BrianSozzi

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